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Hospitality Laws – The Laws Governing Hotel Industries in India

GENERAL INDUSTRY BACKGROUND

The hotel industry forms an integral part of the hospitality industry. The major fields within the hospitality industry include lodging, restaurants, event planning, theme parks, cruise line, etc. The hospitality industry is a multi-billion dollar industry that mostly depends on the availability of leisure time and disposable income.

Unlike other industries and trade, Hospitality Industry requires multiple approvals from central government, such as approval from the ministry of tourism and approvals from regional authorities. It could run from Police permission to labor law compliance and then Tax liabilities to environment clearance depending upon the size and amplitude of the industry.  

Under the Indian Constitution, Hotels and Inns are subjected to state legislation. According to Entry No. 34 of List II of the 7th Schedule of the Indian Constitution, the individual States have the full right and legitimate authority to make laws with respect to gambling and betting. Furthermore, entry No. 62 confers authority to the States to tax gambling and betting events or activities. Thirteen states have legalized lottery, while the States of Goa and Sikkim have legalized and regulated other forms of gambling.

FOLLOWING LEGAL STANDARDS ARE BASICS FOR THE OPERATION OF HOTEL INDUSTRY

  • The Approval of Project 
  • Establishment and Commissioning of Industry
  • The operation, management, and maintenance of Industry
  • Taxation, Employment, and Contracts in Industry

HOTEL ASSOCIATIONS IN INDIA

FHRAI is the voice of the Hospitality Industry and provides an interface between the Hospitality Industry, Political Leadership, Academics, International Associations and other Stake Holders.

Eastern Region comprising 12 States and a Union Territory, the association upholds common voice for hotels, restaurants and associates for unhindered progress of hospitality industry in the country’s Eastern Region.

Hotel and Restaurant Association of Northern India (HRANI) – a Northern outfit of FHRAI is an apex body representing Hotel & Restaurant Industry of the 9 North Indian States.

SIHRA constitutes the Southern Region of Federation of Hotel and Restaurant Associations of India (FHRAI), the Apex Trade Association for the Hospitality industry in India. SIHRA’s Membership comprises the smallest Restaurants to the Five Star Deluxe Hotels in the Southern States of Andhra Pradesh, Telangana, Karnataka, Kerala, and Tamil Nadu and the Union Territory of Puducherry

Since February 1951, when the Hotel and Restaurant Association (Western India) was incorporated as a Company limited by guarantee and not having share capital, the Association has served the interests of the hotel and restaurant industry. The Association over the last several years has taken effective steps to encourage, promote and protect the interest of member establishments. It has been rendering professional assistance from time to time to all its members on topics of vital importance.

Hotel Association of India (HAI) is the apex organization of the Indian Hospitality industry. With its membership extending from the major hotel groups, boutique hotels, heritage hotels, large, medium sized and smaller hotels, it represents the entire spectrum of the industry.

SOME OF THE IMPORTANT LICENSES REQUIRED BY HOTELS UNDER VARIOUS ACTS

  • Police License / Registration.
  • License under Shops & Establishments Act.
  • License under Prevention of Food Adulteration Act.
  • Registration under the Luxury Tax Act.
  • Registration under the Sales Tax Act.
  • Registration under the Contract Labour Act.
  • Registration under the Pollution Control Act.
  • Registration under the Apprentices Act.
  • Registration under the Provident Fund Act.
  • Registration under the ESI Act.
  • Entertainment License on Festival Occasions.
  • License for Chimney under the Smoke Nuisance Act.
  • Registration under the Weights & Measures Act.
  • Factory License for Laundry.
  • Central Excise License for Bakery Products.
  • Registration & Permits under the Motor Vehicle Act for Tourist Coaches / Taxies.
  • Eating House License.
  • Municipal Beer Bar License.
  • License for storage of Diesel Oil.
  • License for storage of Kerosene & Compressed Gas (LPG).
  • Sign Board Directions, Neon Signs.
  • License to deal in Foreign Exchange under FEMA.
  • Cold Storage License, (if over 25 cubic ft.).
  • License for Boiler & Generators and Mixers and Grinders.
  • Bar License (Foreign Liquor).
  • Mild Liquor License.
  • Temporary License for Awnings & covering of Terrace during monsoon.
  • Building Completion Certificate.
  • Copy Right License for Playing of Music.
  • Lodging House License
  • Approval from the Department of Tourism, Government of India.
  • Registration from GTDC for new projects under the Package Scheme of Incentives.

SOME IMPORTANT LEGISLATION

Prevention of Food Adulteration Act

  • It is a Central Government Act.
  • This Act has been enacted to

1. protect the public from poisonous and harmful foods.

2. prevent the sale of substandard foods.

3. protect the interests of the consumers by eliminating fraudulent practices.

Food Safety and Standards Act

The Act deals with the following:

  • Establishment of the Food Safety and Standards Authority of India, which lays down scientific standards relating to articles of food; and
  • Regulates the manufacture, storage, distribution, sale and import of food articles, and
  • Ensuring the availability of safe and wholesome food for human consumption and for matters connected therewith or incidental thereto.

The Legal Metrology Act

  • This Act was enacted to establish and enforce standards of weights and measures, regulate trade and commerce in weights, measures and other goods which are sold or distributed on weight, measure or number.
  • It is a Central Government Legislation.

Copyrights Act

  • It is a Central Legislation to protect rights relating to literary, dramatic, musical, artistic, architectural works, etc.
  • Hotels have to take license under this Act to organize plays, musical shows or any other event.

The Foreign Exchange Management Act (FEMA)

  • It is an Act passed in the winter session of Parliament in 1999
  • It replaced Foreign Exchange Regulation Act.
  • This act seeks to make offenses related to foreign exchange civil offenses.
  • It extends to the whole of India.

The State Specific Shops and Establishments statutes

  • These legislations have been enacted to provide statutory obligation and rights to employees and employers in the unorganized sector of employment, i.e. shops and establishments. It is applicable to all persons employed in an establishment with or without wages, except the members of the employer’s family.
  • It is a State legislation and each State has framed its own rules for the Act. The State Government can exempt, either permanently or for a specified period, any establishments from all or any provisions of this Act.
  • The Act provides for compulsory registration of shop/ establishment within 30 days of commencement of work and all communications of closure of an establishment within 15 days from its closing.
  • It also lays down the hours of work per day and week as well as the guidelines for spread-over, rest interval, opening and closing hours, closed days, national and religious holidays, overtime work, etc.

The Employees State Insurance Act

  • It is a Central Government legislation
  • The promulgation of Employees’ State Insurance Act, 1948 envisaged an integrated need based social insurance scheme that would protect the interest of workers in contingencies such as sickness, maternity, temporary or permanent physical disablement, death due to employment injury resulting in the loss of wages or earning capacity.
  • The Act also guarantees reasonably good medical care to workers and their immediate dependents.
  • Following the promulgation of the ESI Act the Central Government set up the ESI Corporation to administer the Scheme.

The Provident Funds Act

  • It is a Central Government Legislation.
  • It is regulated by the Government of India under the Ministry of Labour and Employment.
  • It administers a compulsory contributory Provident Fund Scheme.

The Apprentices Act

  • This Act has been enacted to provide for the regulation and control of training of apprentices and for matters connected therewith.
  • It is a Central Government Legislation

The Air (Prevention and Control of Pollution) Act, 1981

  • This Act has been enacted to provide for the prevention, control and abatement of air pollution, for the establishment, with a view to carrying out the aforesaid purposes, of Boards, for conferring on and assigning to such Boards, the powers and functions relating thereto and for matters connected therewith.
  • It is a Central Government Legislation

The Water (Prevention and Control of Pollution) Act, 1974

  • This Act has been enacted to provide for the prevention and control of water pollution and the maintaining or restoring of wholesomeness of water, for the establishment, with a view to carrying out the purposes aforesaid, of Boards for the prevention and control of water pollution, for conferring on and assigning to such Boards, the powers and functions relating thereto and for matters connected therewith.
  • It is a Central Government legislation

Hotel Insurance Policies

  • Hotel insurance is specifically designed to meet the growing requirements of the hotel industry.
  • Customized hotel insurance can be arranged to cover all types of establishments. Be it spas, ranches, guest houses, bed and breakfasts (B and Bs) or apartments, hotel insurance caters to every kind of establishment.
  • A standard hotel insurance policy includes protection against perils, such as builder’s risk, fire and accidental damage, and natural calamities. Other types of coverage, such as liquor liability, are a part of the policy’s casualty portion.

Other important Legislations

  • Laws related to local land norms
  • Other local laws

TAX LAWS

Income Tax Act, 1961

  • It is tax on income imposed by Central Government
  • Residents in India are taxed on their worldwide income
  • Non- residents are taxed on Indian source of income
  • The Indian tax rates applicable to non-residents could be up to a maximum of 40 % i.e. in case of foreign companies (excluding applicable surcharge and education cess)
  • If the tax payable by any company, including a foreign company taxable in India, is less than 18.5 % of its book profits, it will be required to pay Minimum Alternate Tax
  • Interest received by a non-resident from Indian on foreign currency denominated loans may be taxable.
  • Payments towards royalty and fees for technical services are taxable.

Value Added Tax (VAT)

  • Sales tax / VAT is levied by states on sale of goods within its territory.
  • VAT is levied on value added at each stage in the production and distribution process of goods and services.
  • All hotels that exceed the annual registration threshold have to be registered for VAT.
  • VAT is levied on hotel bills pertaining to lodging, food, telephone, tours, etc.
  • After the implementation of VAT, hotel tax is abolished and therefore hotels do not have to be registered for hotel tax.
  • The rates of VAT differ from state to state. The general rate of VAT applicable on food and beverages in a restaurant is 14.5 %.

CENVAT

  • Duty imposed by Central Government on manufacture of goods
  • CENVAT is imposed at 12 % with lower rates applicable in certain cases
  • Food preparations containing fruits and vegetables falling under Chapter 20, which are prepared and served in a hotel, restaurant or retail outlet whether or not such food is consumed in such hotel, restaurant or retail outlet is being fully exempted from basic excise duty with exception of Bakery and Confectionery items.

Service Tax

  • Under the current service tax regime, all services are taxable unless exempt.
  • General rate of service tax is 12.36 % (Including EC and SHEC)
  • Service tax on hotel accommodation is payable at 7.42 %. Service tax on food and beverages is chargeable at 4.94 % in restaurants with air-conditioning.
  • Food served in hotel rooms from their air-conditioned restaurants with liquor license will not attract service tax.
  • CENVAT Credit is available for the provider of taxable output services.

Luxury Tax

  • Under the current tax regime, every state has their individual Luxury Tax Acts.
  • Though previously it covered more categories of assessees, at present it covers only the hotels as a taxable assessee.
  • The tax is levied on luxuries provided in hotels, lodging house, clubs and inns etc. including residential accommodation but does not include the supply of food, drinks or other services which is separately charged for under Service Tax or other taxes.

Entertainment/Amusement Tax

  • In India, entertainment tax is levied on every financial transaction that is related to entertainment such as movie tickets, major commercial shows and big private festivals. Entertainment means any exhibition, performance, amusement, game, sport or race, (including horse race) and cinematographic exhibitions.
  • As per the Indian Constitution, entertainment is included in List 2. This revenue is reserved primarily for the state governments.
  • Following are some other forms of entertainment that are included in the purview of entertainment taxes: amusement parks, video games, arcades, exhibitions, celebrity stage shows, sports activities, bowling alleys and billiards/pool joints.
  • In India, state governments are primarily responsible for collecting the entertainment taxes. However, the union government can also collect these taxes on the basis of the type of transaction.
  • The basic financial principle, which separates the entertainment taxes to be collected by the union government and ones under the jurisdiction of the state government, is mentioned in the Article 246 of the Indian constitution.

Expenditure Tax

  • Expenditure tax in India is regulated by the Expenditure Tax Act, 1987.
  • This Act shall apply in relation to any chargeable expenditure incurred in a hotel wherein the room charges for any unit of residential accommodation at the time of incurring of such expenditure or incurred in a restaurant are one thousand two hundred rupees or more per day per individual and where,– (a) a composite charge is payable in respect of such unit and food, the room charges included therein shall be determined in the prescribed manner; (b) (i) a composite charge is payable in respect of such unit, food, drinks and other services, or any of them, and the case is not covered by the provisions of sub-clause (a), or (ii) it appears to the Assessing Officer that the charges for such unit, food, drinks or other services are so arranged that the room charges are understated and the other charges are overstated; and (2) incurred in a restaurant.
  • Rate of tax is 20 %
  • It is a tax collected by the Central Government.

HOTEL OPERATION IN INDIA – MINISTRY OF TOURISM, GOVT. OF INDIA

Approvals based on broad classifications

Ministry of Tourism has decided to grant approval to convention centers to encourage investment and standardize facilities at the convention centers for Meetings, Incentives, Conference and Exhibitions (MICE) etc..

Motels are an important segment of the hospitality sector which provide budget accommodation. Motels cater to the hospitality requirements of road travelers through the facilities and services offered by them. With the aim of recognizing this segment as a component of the overall tourism product, and with the aim of benchmarking the standards of facilities and services of Motels, the Ministry of Tourism has formulated a voluntary scheme for Approval of Motel Projects

Heritage Hotels’ cover running hotels in palaces/castles/forts/havelies/hunting loges/
residence of any size built prior to 1950.

With the liberalization of Air Tax Services, charter policy, more International Airlines operation and also increased domestic flights, several Air Catering Units have been set up in order to cater to the requirements of such air passengers. Keeping in view the specialized professional inputs and outputs in this segment, matching the international standards, the Ministry of Tourism approves and classifies Standalone Air Catering Units in the country.

Time Share Resorts (TSR) are increasingly becoming popular for leisure holidays and family holidays, etc. With the aim of providing standardized world-class services to tourists, the Government of India, Ministry of Tourism has a voluntary scheme for classification of fully operational Time Share Resorts.

Guide Lines for stand-alone Restaurants, they serve only food and nothing more. Restaurants range from inexpensive and informal lunching or dining places catering to people working nearby, with modest food served in simple settings at low prices, to expensive establishments serving refined food and fine wines in a formal setting. 

In order to meet the rising demand of hotel accommodation for budget tourists both domestic and foreign, Ministry of Tourism has decided to standardize and ensure good, clean, hygienic, fair and upgraded facilities and practices in a large number of Guest Houses and unregulated accommodation units that spring up in cities and towns

Apartment hotels are best for family holiday and staying for long time.

To meet the increasing demand of tourists, camping facilities and tented accommodation would need to be developed. There is, therefore, a need to promote and facilitate setting up of campsites while ensuring adherence to quality, standards and safety norms.

REGIONAL APPROVAL – MUNICIPAL LICENCE AND REGISTRATION 

New Delhi Municipal Council (Regulation of Hotels, Lodging houses and Similar Places) bye-laws

  • Lodging house —  For the purpose of bye-laws 4 to 8 a “lodging house” shall mean a sarai, hotel, boarding house for the public, rest house, or unlicensed emigration depot or any other place where the public are admitted and provided with sleeping accommodation on payment and shall include religious and charitable institutions or “Ran Baseras” maintained and supervised by the Government or the Council.
  • Registration of a licensee —  Every licensee of a lodging house shall cause his name to be registered as such in the Office of the Council and shall also furnish to the Chairperson the following information in writing:-(a) The postal address of his lodging house. (b)  The number of rooms reserved for lodgers in such house, along with dimensions of each room.

REGISTRATION AND LICENCE UNDER REGIONAL SHOP AND ESTABLISHMENT ACT

GAMBLING IN HOTELS – Goa and Sikkim are well-known gambling destinations within India.

Gambling in GOA – Goa Public Gambling Amendment Bill to amend 1976 Act.

Legal Gambling in Sikkim –Sikkim is a second Indian State that has legalized gambling:

LIQUOR BAR LICENCE FOR HOTEL

In order to sell alcohol in India, one needs to procure a liquor license. Usually, liquor stores, pubs, clubs, discos, bars, hotels, and restaurants own a license to sell alcohol. So, the sellers are required to hold a license to sell alcohol, otherwise, the selling of alcohol is illegal and prohibited until registration for a liquor license is done.

Article 47 of the Indian Constitution puts a duty upon the State to bring prohibition on the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health. This is a reason behind a strict ban on alcohol in as many as 5 Indian states.

According to the Licensing Act 2003, you need a license to sell alcohol and this includes giving away free alcohol as it is considered an incentive to purchase or that it is included in your pricing structure.

Some of the key laws governing alcohol consumption in India are:

1. The Delhi Excise Act, 2009

The Delhi Excise Act, 2009 is the act that governs all matters relating to the manufacture, import, export, transport, possession, purchase, sale, etc., of the liquor and other intoxicants, in the NCT of Delhi. As per Sec 23 of the Act, no person below the age of 25 shall be served and/or delivered alcohol for consumption. The Delhi Excise Act also establishes the licensing authorities for obtaining a liquor license in the NCT of Delhi.

2. The Delhi Excise Rules 2010

Complementing the Delhi Excise Act, 2009, the Delhi Excise Rules 2010, lays down the detailed procedure for obtaining a liquor license in Delhi. The Act also lays down detailed rules regarding the import, export, possession transport, permits and passes in relation to alcohol and other intoxicants.

3. The Bombay Prohibition Act 1949

The Bombay Prohibition Act, 1949 is an Act that caters to the enforcement and promotion of alcohol prohibition in the state of Bombay. After the state of Bombay was divided into the states of Maharashtra and Gujarat in 1960, the Act was made to be applicable in the State of Gujarat.

Under The Bombay Prohibition Act, 1949, a permit is mandatory to purchase, possess, serve or consume liquor. The Act also empowers the police and other authorities to arrest a person for indulging in acts that are in contravention to the Bombay Prohibition Act with punishment ranging from three months to five years in prison. The Bombay Prohibition Act thus bans liquor consumption in the state of Gujarat.

4. The Goa Excise Duty Act and Rules, 1964

The Goa Excise Duty Act and Rules, 1964, is a piece of legislation that regulates the manufacture, import, export, transport, possession, purchase, sale, etc., of the liquor and other intoxicants, in the state of Goa. The act consolidates all the functioning liquor laws prevailing in the state of Goa and defines key regulations such as legal drinking age, excise authorities, prohibitions, licensing rules, etc. Section 19 of The Goa Excise Duty Act and Rules act prohibits the sale of liquor to any person who is:

  • A person of unsound mind
  • A person below the age of 21

5. Tamil Nadu Liquor (License and Permit) Rules, 1981

The Tamil Nadu Liquor (License and Permit) Rules, 1981 is an act that regulates the manufacture, import, export, transport, possession, purchase, sale, etc., of the liquor and other intoxicants, in the state of Tamil Nadu. According to the general provisions of the act, no liquor can be imported in the state of Tamil Nadu, other than by persons holding a valid permit as per form FP3, FP5, FM1, and FL7. The act also restricts the export of liquor outside of Tamil Nadu except by persons holding a license as per form FL4.

6. Uttar Pradesh (United Provinces Excise Act, 1910)

The Uttar Pradesh (United Provinces Excise Act, 1910) is an act that regulates the manufacture, import, export, transport, possession, purchase, sale, etc., of the liquor and other intoxicants, in the state of Uttar Pradesh. According to the preamble of the act, it is drafted to promote, enforce and/or carry into effect the policy of prohibiting the import, export, transport, manufacture, sale, and possession of liquor and of intoxicating drugs in the United Provinces. The act prohibits the import and export of liquor in/from the state of Uttar Pradesh without prior approval of the State Government in the form of a permit/ license.

7. West Bengal (Bengal Excise Act 1909)

The West Bengal (Bengal Excise Act 1909) is an act that regulates the manufacture, import, export, transport, possession, purchase, sale, etc., of the liquor and other intoxicants, in the state of West Bengal. The act gives exclusive powers to the State Government to declare what constitutes “country” and “foreign” liquor. Additionally, the act lays down licensing and permit requirements for dealing with liquor and other intoxicants.

8. Haryana (Punjab Excise Act, 1914)

The Haryana (Punjab Excise Act, 1914) is an act that regulates the manufacture, import, export, transport, possession, purchase, sale, etc., of the liquor and other intoxicants, in the state of Haryana. The Act lays down provisions relating to the establishment of excise authorities, duties and fees, offenses and penalties relating to the import, export, manufacturing, and possession of liquor and other intoxicants. The act also sets the legal age of drinking as 25 years in the state of Haryana.

9. Karnataka Excise Act, 196T5

The Karnataka Excise Act, 1965 is a piece of legislation that regulates the manufacture, import, export, transport, possession, purchase, sale, etc., of the liquor and other intoxicants, in the state of Karnataka. The act lays down detailed provisions regarding the appointment of excise commissioners, licensing and permit regulations, duties, fees, offences, penalties, etc. The Karnataka Excise Act, 1965 sets the legal age of drinking in the state of Karnataka as 18 years.

In addition to the state-specific laws to regulate matters relating to liquor and other intoxicants.

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